TAX 9869 Lecture Notes - Lecture 38: Withholding Tax

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17 Jul 2020
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Recap: FIDAP income, withholding tax, portfolio interest exceptions,
FIRPTA (to know),
Question: what if I’m not dealing with FDAP income? What if I’m dealing
with an individual/corp engaged in US trade or biz in US?
Potentially have diff sets of rules to deal with
Discuss: is someone engaged in a US trade/biz. Even if you are, doesn’t
mean automatically subject to US tax on that income. You have to have
effectively connected income for that US trade/biz (ECI).
Is foreign person engaged in US trade/biz, is there ECI to that US
trade/biz? If so, subject to US taxation on that income.
You could have effectively connected loss- file US tax returns for the loss
First thing: how do we decide if a foreign person is engaged in a US
trade/biz? There is no clear definition/exact situation in rules that tell you if
so.
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The way to think about it: US trade/biz will generally be by progression,
continuity, sustained activity. Continuous/regular. When activity is of that
nature during substantial portion of taxable year= US trade/biz.
Revenue Ruling: a dude enters horse in 1 race. IRS viewed that as US
trade/biz. Interesting.
In order for trade/biz to exist in US, the foreign person has to have its core
activities- the activities used to derive profit of that biz- are conducted in the
US
Where do we find these rules? Sec 864 has the def of trade/biz.
A trade/biz under code= continuous, regular
We will talk about stuff that is trade/biz, stuff exemption from trade/biz, ECI,
whether FIDAP could be ECI?
Turning FIDAP into ECI
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